Income Approach

INCOME APPROACH

The income approach is used to value commercial or industrial properties, or properties which are bought and sold by investors primarily because of their income producing potential. This approach to value depends on reliable and detailed information on the income and the costs of doing business for a particular business or enterprise. This is referred to as the "income stream" of the property. The income approach defines value as "the present worth of future benefits of owning a property." The economic principle of anticipation weighs heavily on the income approach to value. These benefits are composed of the annual income for an estimated number of years (called the economic life of the property) plus a capital amount representing land value or land value plus some remaining worth of the improvements. This approach emphasizes investment components rather than physical components of a property.